Growth potential seen in microfinance sector

With a quarter of the Myanmar population living under the poverty line and as much as 87 percent hailing from rural areas, according to the World Bank, the microfinance sector has good potential to grow in Myanmar. However, providers can be more efficient in their funding if there is better financial data on borrowers.

Microfinancing has grown rapidly since the country passed the Microfinance Business Law in 2011 allowing microfinancing firms to operate, with some 180 companies now serving 3.4 million clients and a total loan portfolio of K350 billion, according to the Myanmar Microfinance Association (MMFA).

Over the past two years, foreign and local banks have also financed the growth of the sector.

Yoma Bank, for example, has lent more than K70 million to at least ten microfinance institutions in Myanmar, U Kaung Myat Lu, Microfinance Institutions Relationship Manager of Yoma Bank, told The Myanmar Times.

However, a lack of credit or financial history for borrowers continues to hamper the industry with many borrowing from multiple microfinance firms to cover loans still owed to other providers. As the country has yet to establish a functioning credit bureau, there is limited data available to minimise these practices.

Currently, microfinance institutions and the government are testing credit registry to solve overlapping credit issues, said Daw Phyu Yamin Myat, secretary of the MMFA.

Investor interest

Despite the challenges, Early Dawn Microfinance Co Ltd chief executive officer Gonzalo Gonzaleznoted that quite a number of local and foreign investors have voiced their interest in backing financial services, including in microfinance.

As such, “reforms are needed to attract these investments as microfinance in this country still has a lot of growth potential,” he said, adding that investors will evaluate such factors as financing goals, operations, product, quality of management and repayment track record before choosing to support a microfinancing scheme.

Myanmar has a population of over 50 million, with at least12 million living in poverty.

Currently, microfinance institutions serve just over three million, implying a large pool of untapped potential for investors.

In addition, around 99pc of borrowers pay back their loans, said U Ko Ko Maung, director of Financial Regulatory Department under Ministry of Planning and Finance (MOPF).

“We see that the microfinance sector is growing fast in recent years, backed by foreign investment, and numerous microfinance institutions are being established. This pace of growth is likely to continue,” he said.

To further support growth in the sector, the MOPF last month reduced interest rate for microfinance loans and compulsory saving, with the new rates to take effect in the beginning of June.

Under Directive (1/2019), the ministry amended the interest rate where a loan of K100 monthly will now be charged K2.30 and the yearly maximum interest rate will be 28pc. The previous rate was K2.50 for a K100 monthly loan and the yearly maximum interest rate was 30pc.

The MMFA said its members will need a transition period to implement the new rates and has submitted the matter to the MOPF.

“The impact of revising interest rates for microfinance loans has an impact on both institutions and the borrower. For borrowers, it is good news. For microfinance institutions though, we all are facing some difficulties following the new directives quickly and many of us have had to draft a new business plan,” she said.

“Our management, capital, loans and profits for the short term and long term are all based on interest rates. Currently, the government has allowed until 2019-20 for us to follow the directives, she said.

Source: Myanmar Times

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